Gold Prices in 2012

In 2011, the rise in the price of gold has been very positive for investors. While gold in 2011 has risen from early 2011 until early December 2011 by 21% of its value, there was from mid-September to mid-October also a significant drop from the interim high of USD$ 1,900 (€ 1375) by 16% to USD$ 1,600 (€ 1,176). However, from this low point, the gold price rapidly recovered by about 8%, so that the price of gold is with USD$ 1,725 per ounce currently 21% higher as at the beginning of the year.

In 2012 the gold price will be determined by the supply of and the demand for gold. The supply of gold is determined by the gold mining by mining companies, the recycling of gold, and the possible sale of gold by central banks.

The demand for gold is composed of three building blocks: Gold for technological applications (particularly in dentistry and electronics), gold in jewelry and gold as an investment product.

The demand/ supply of gold by central banks could also be considered on the demand side. Since the central banks were until recently net sellers of gold, the supply or demand appears regularly on the supply side, even though central banks have bought in 2011 more gold in total than they have sold.

Gold supply

According to the World Gold Council, the identifiable supply of gold increased in the 3rd Quarter of 2011 by 2% over the level of the previous year. Gold production from gold mines increased by 5%, the recycling of old gold increased by 13% over the previous year. The supply of gold rose by a total of only 2% as central banks continued to buy more gold than to sell – to an increasing amount. After many years in which the central banks sold gold, this trend turned around for the first time in 2010 and has accelerated in 2011.

Gold demand

According to the World Gold Council, total supply of gold increased by 2% in the third quarter of 2011 compared with a 6% rise in identifiable demand for gold. In the third quarter of 2011, about 44% of the available gold supply went to jewelry-making and investment, respectively. The remaining 11% went into ​technology.

Compared to last year, demand for gold for jewelry production fell by 10% in the third quarter of 2011. The main reason for this may be the rising gold price resulting in more expensive gold jewelry. By contrast, the demand for gold as an investment increased by a whopping 33%, despite the fact that – in addition to any profit-taking – some institutional investors probably had to sell their gold to offset losses in other asset classes like stocks. In our view, it is also likely that part of the jewelry gold is rather seen as an investment asset than as jewelry: In the Middle East and countries like India, gold jewelry is often sold at very low premiums above the material value and is in fact often considered as an investment asset and used accordingly.

The total demand for gold in the technology and dental sector remained nearly constant over the previous year.

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Gold expected to touch 28700 by the end of 2011, 32500 by 2012

Gold will trade positive in 2012 driven by central bank buying, India China consumption, global macro-uncertainties and higher investment demand especially through exchange traded funds (ETFs). Gold prices surged 28% to $1923.70 in September in 11th year of bull run and with US interest rates close to zero and continuing Eurozone debt crisis  that adds to the safe haven appeal of gold.  Gold has surged 38 percent this year, touching a record 29300 rupees per 10 grams in Indian market.  Weak rupee may provide further support for prices. Commodity Online Research expects gold to touch Rs 28700 per 10 gms by end of this month and Rs 32,500 by 2012. Gold  held in ETFs globally has climbed to a record 2,358.206 metric tons on December 6. Global gold demand in third quarter of 2011 was strong at 1,053.9 tonnes, an increase of 6% compared to the same period last year. This equates to US$57.7bn, an all-time high in value terms. This increase was driven by investment demand which rose by 33% year-on-year to 468.1 tonnes, generating record quarterly demand of US$25.6 bn. Healthy growth in jewellery demand and modest gains in demand from the technology sector were offset by a year-on-year decline in investment, principally from ETFs and similar products. In India, latest industry report indicates that the average assets under management for Gold ETFs is more than Rs. 9000 Crores which indicates that Gold is emerging from the shadows of equity and debt with an identity of its own as a preferred investment opportunity. Gold has risen 20 percent annually in the past four years. In 2011, Gold has given highest return of more than 35 percent in last 10 years. This year closing prices are expected in range of 28700-900 rupees. In 2012, first quarter, gold to touch Rs 31,600 per 10 gms.

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